In the News: Duke Energy to Acquire Piedmont Natural Gas for $6.7 Billion

December 2015 Vol. 242, No. 12

Duke Energy Corp. announced Oct. 26 it will acquire Piedmont Natural Gas Co. Inc. for $4.9 billion in cash. Duke will also assume $1.8 billion in Piedmont existing net debt.

Piedmont began operations in 1951 in Charlotte, NC and is primarily engaged in distributing natural gas to over 1 million residential, commercial, industrial and power generation customers in portions of North Carolina, South Carolina and Tennessee. Duke and Piedmont are key partners in the $5 billion Atlantic Coast Pipeline that will be the first major natural gas pipeline serving eastern North Carolina.

The companies want to close the transaction by the end of 2016. Piedmont will keep its name, operate as a unit of Duke and maintain its presence and its headquarters in Charlotte. Duke will add one member of Piedmont’s board of directors to its board. An existing member of Piedmont’s management team will lead Duke’s natural gas operations in the Carolinas, Tennessee, Ohio and Kentucky.

Natural Gas Prices Dragging Down Marcellus

Weak realized natural gas prices appear to be inhibiting production growth in the Marcellus Shale region, Fitch Ratings reported last month, citing several key Marcellus producers that are lowering 2016 production expectations because of low prices.

Six Marcellus producers reported production-weighted gas prices for the third quarter averaged $2.07 per thousand cubic feet, less than full-cycle costs estimated at $2.50 per unit. “Marcellus producers continue to pursue lower costs and improved efficiencies to remain competitive,” Fitch said. Marcellus prices tend to be lower than the national price because of a shortage of pipeline infrastructure to deliver production.

Sheehan Construction’s Riess elected INGAA Foundation Chairman

The INGAA Foundation’s board of directors elected Robert A. Riess, Sr., president and CEO of Sheehan Pipe Line Construction Co., as its new chairman for a one year-term beginning Nov. 7.

“Rob has extensive experience in pipeline construction, and he understands what it takes to build a natural gas pipeline safely and on time. This experience and insight make him ideally suited to take the reins as chairman of the INGAA Foundation for the coming year,” said INGAA Foundation President and Chief Executive Officer Don Santa.
“My priority is to help build an even stronger safety and quality culture within the pipeline industry. Last year, we expanded the Foundation’s safety committee to include quality. We believe it is imperative to ensure that the materials and services provided to the pipeline industry are of the highest quality to ensure both public and worker safety,” Riess said.

Riess, who worked with Sheehan Construction in 1991-95, rejoined Sheehan in 2004 as its president. In 2006, he became a partner and added the role of CEO. Riess previously worked with Texas Eastern Transmission Co. in various roles, including manager of construction and general manager of environmental services. He also worked for construction company ARB Inc., as a vice president responsible for the company’s underground division, which consisted primarily of pipeline construction east of the Rockies. Riess also managed the company’s horizontal directional drilling division and its international operations.

The board also elected Tom Hutchins, vice president of Environment, Health and Safety, for Kinder Morgan, as vice chairman.

PHMSA Grants $54 Million for State Pipeline Safety Programs

The Department of Transportation’s Pipeline and Hazardous Materials Safety Administration (PHMSA) is awarding $54,085,440 in Pipeline Safety Base grants to 46 states, the District of Columbia, and Puerto Rico.

“Not only are these grants imperative for our federal/state partnership to work, they demonstrate our commitment to the American public that we are serious about helping to make our utility lines the safest and most reliable in the world” said Transportation Secretary Anthony Foxx.

“These grants ensure state programs have the funding they need for resources, including personnel and equipment, to protect communities, carry out inspections and enforce pipeline safety regulations that keep the entire pipeline network as safe as possible.”

The grants provide up to 80% of operating costs for state pipeline regulators that agree to inspect intrastate pipelines on PHMSA’s behalf. Participating states and territories account for 330 inspectors who are responsible for over 80% of the country’s intrastate natural gas and hazardous liquid pipeline mileage.

UT Poll: Views of Key Energy Issues Shaped by Politics

Most Americans (76%) now believe that climate change is occurring, up from 68% one year ago, says the University of Texas at Austin Energy Poll. The biannual nationwide survey, held Sept. 1-15, found growing support for environmental protection in several areas, especially among Democrats and millennials.

The poll reveals sharp political divisions among Americans on several prominent energy issues. For example, 90% of Democrats say climate change is occurring, compared with 59% of Republicans (up from 47% six months earlier); 29% of Republicans say climate change is not occurring, compared with only 3% of Democrats.

“Political ideology continues to be the single greatest determinant of Americans’ views on climate change,” said UT Energy Poll Director Sheril Kirshenbaum. ‘Party affiliation also colors perceptions of other controversial energy topics, including efforts to reduce coal-fired power and levy a tax on carbon.”

Energy also appears to be an important issue in 2016’s presidential election. For example, 52% of survey respondents say they are more likely to vote for a candidate who supports reducing coal as an energy source, up from 43% in March. And 37% of survey respondents say they are more likely to vote for a candidate who favors a carbon tax, up from 28%. Most (62%) say they are more likely to vote for a candidate who supports requiring utilities to obtain a certain percentage of their electricity from renewable sources, up from 54% in March.

Crude Price Unlikely to Exceed $60 in 2016

At the Reuters Global Commodities Summit held Oct. 20, Vitol, the world’s largest oil trader, said it believes crude prices will struggle to trade above $60 a barrel next year, as the effects of slowing global demand growth could be compounded by a return of Iranian and even Libyan oil.

Ian Taylor, chief executive of Vitol, said his company forecast global oil demand growth in 2016 to reach 1.35 MMbpd, slowing from this year’s strong expected growth of 1.7 MMbpd. Cheap oil encouraged record refining runs, but he said even this has not been enough to absorb oversupply and the price has held below $50 a barrel for much of the second half of the year. Taylor expects consumption in China to increase next year, but global demand growth would likely still fall short of the levels this year.

Oklahoma Regulators Shut Down Disposal Wells in Area of Quakes

Oklahoma oil and gas regulators dealing with a dramatic increase in earthquakes near the oil pipeline and storage hub of Cushing last month shut down three more drilling wastewater disposal wells. Another well was shut down by the company that owns it after regulators said they were concerned it was drilled too deep. Operators of seven other wells were told to reduce the volume of drilling waste injected deep underground.

The Oklahoma Corporation Commission told the operators of 13 other wells in the area that they may need to change operations in the future. The commission is directing wells within 3 miles of the recent earthquakes to shut in. Wells 3-6 miles away have to reduce volumes 25%. Wells 6-10 miles away are on notice. OCC began restricting wells near Cushing a month ago, soon after a magnitude 4.1 quake hit northwest of the city. The quakes have continued including a 4.5 tremor Oct. 10.

Scientists say favorably aligned faults and production methods that create uniquely large volumes of wastewater appear to have combined to create unprecedented swarms of man-made earthquakes in Oklahoma. The Cushing area has been shaken by 43 quakes of magnitude 2.5 or higher since Sept. 1, according to U.S. Geological Survey data. The state has had over 700 earthquakes of magnitude 3 or greater this year, an increase over 585 last year.

Texas Lawmakers Want More Pipeline Inspectors

Texas lawmakers are asking the federal government to hire more federal inspectors to monitor the 2.6 million miles of pipelines that carry oil and other fuels across the U.S.

The legislators, including Gene Green (D-Houston), and Pete Olson (R-Sugar Land), want legislation that would shift hiring authority from the federal Office of Personnel Management to the Pipeline and Hazardous Materials Safety Administration (PHMSA). The change is seen as making it easier and quicker to bring on inspectors by eliminating a lengthy vetting process and waiving competitive rating requirements and a preference for veterans.

“Pipeline safety is critical,” Olson said, but it “relies upon an adequate supply of inspectors to accomplish inspections in a timely manner to both protect surrounding areas and ensure timely delivery of needed energy.”

Trudeau Victory May Doom Oil Sands Project

Canada’s Liberal Party win for Justin Trudeau may spell the demise of Enbridge’s proposal to build the Northern Gateway oil pipeline through northern British Columbia. Trudeau said during his campaign that he opposed the project, saying that “the Great Bear Rainforest is not a place for an oil pipeline.” He also pledged a moratorium on oil tankers on the north coast, which would effectively kill the $7.9 billion project to move Alberta oil sands production to the coast for export.

Still viable is Kinder Morgan’s $5.4 billion Trans Mountain oil pipeline expansion in southern B.C. which would increase tanker traffic in the inlet in front of Vancouver. Trudeau said Vancouver and its surrounding waters have a long industrial past, making it important for Canada to transport its resources to market. B.C.’s LNG plans – which include proposed pipelines and LNG terminals on the coast – don’t appear to face obstacles from the new government other than a promise to more vigorously engage First Nations.

Oil Companies Pledge Support for Paris Climate Deal

The chief executives of 10 of the world’s biggest oil and gas companies have pledged support for an “effective” deal to fight global warming at the upcoming Paris conference. In a statement on Oct. 16, the CEOs of BP, Shell, Saudi Aramco, Total, Repsol, Statoil, Eni, Pemex, Reliance Industries and BG Group said they recognize greenhouse gas emissions trends are inconsistent with the ambition to keep warming below a level many consider dangerous. The companies offered to reduce flaring and methane emissions from oil and gas operations. They also called for replacing coal with natural gas in power generation.

Kinder Morgan, BP Form JV to Purchase U.S. Terminals from BP

Kinder Morgan, Inc. has agreements with BP Products North America Inc. to acquire 15 refined products terminals and associated infrastructure in the U.S. for $350 million. Kinder Morgan and BP will form a joint venture limited liability company terminal business to own 14 of the acquired assets, which Kinder Morgan will operate and market. One terminal will be owned solely by KMI.

The terminals, with 9.5 MMbbls of storage, are pipeline-connected to key refining and processing centers across the U.S. and offer truck, vessel, and barge access and terminal service capabilities. Kinder Morgan will own a 75% interest in the JV, with BP owning the balance. The terminals are located in the Midwest, Northeast, Southeast, and on the West Coast.

BP will enter into commercial agreements securing long-term storage and throughput capacity from the JV, which plans to market additional capacity to third-party customers.

“We are excited to be partnering with BP on this joint venture,” said John Schlosser, president of Kinder Morgan Terminals. “By combining BP’s expertise in product trading and marketing with Kinder Morgan’s strength in operations and terminal development, the JV is well-suited for growth opportunities in high-demand refined petroleum products markets.”

Pentagon Energy Announces Sale of CNG

Pentagon Energy has secured a major deal involving the sale of up to 90 Bcf of compressed natural gas. The buyer in the five-year deal was not named in a news release. Pentagon, which was founded by a group of former Morgan Stanley executives, will use its Marcellus CNG facility to provide the natural gas required in the deal.

New England Customers in Favor of Natural Gas Pipelines

New England’s utility customers favor bringing new natural gas pipelines into the region, said Maine Natural Gas Sales and Marketing Manager Peter Bottomley. “Talking to the homeowners and property owners, they all want to get gas service,” he told Platts. Bottomley noted “a decrease of interest from residential customers” in new construction during recent months of low natural gas prices, but said support from commercial customers remains high.

Sub-Antarctic Oil Exploration to Begin off Australia

BP is preparing to begin exploration of what has been called one of the world’s least explored regions when it drills in the region off the South Australian coast bordering Antarctic waters next year. Chevron, Murphy Oil, Statoil and a pair of Australian oil companies are expected to eventually join BP, according to Forbes.

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